Dan Steinbock

Dan Steinbock

About the author:

Dr Steinbock is an internationally recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among all major advanced economies and large emerging economies. In addition to advisory activities (www.differencegroup.net), he is affiliated with India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, please see http://www.differencegroup.net/. Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore).

Washington sanctions on Iran have undermined the very goals that it would like to achieve. Rather than engaging Tehran, the sanctions are reinforcing the hardliners; isolating a moderate sections of Iran’s community, including the business community and the middle class; dividing old U.S. allies and strengthening China’s clout in the Middle East.

After two decades of on-and-off talks, Washington and Brussels hope to conclude their trade and investment partnership. However, it is not a marriage, but a triangle drama. Emerging Asia is the third party.

As the momentum of economic growth is shifting from the transatlantic axis to Asia, both the United States and China are rebalancing their foreign policies in the region. However, as the recent APEC and ASEAN summits indicate, the way these two great nations are pivoting in Asia is very, very different.

As advanced economies struggle with their debt crises, the typical drivers of growth – consumption, government, net exports – are ailing in many countries, particularly in Europe. As a result, many nations hope to rejuvenate their economies through investment. Last year, however, FDI in Europe plunged. Europe alone accounted for two thirds of the global FDI decline.

In the 1920s, Shanghai was THE major centre of international trade and finance in East Asia. The position of the “Pearl of the Orient” though eroded with the turmoil of the 1930s. Shanghai’s new free trade zone however could restore the city’s past glory – with the expected competitive impact to be felt in Hong Kong and Singapore.

In the United States, Bo Xilai’s “trial of the century” was reported as a spicy cocktail of sex, power and violence. The real story however is about the pitfalls of rapid economic development, generational change in politics, and the progress of the rule of law in China.

Although recent market data have pointed to possible signs of recovery, the European debt crisis is still nowhere close to going away. What’s more, during the past half a decade, prosperity levels have stagnated or fallen so dramatically across Southern Europe – that even if the region would ultimately recover, it will be a far different Europe from what we’ve known from the past.

Foreign direct investment has long been a staple source of income for many nations in Asia, with fast-growing economies in the region taking up nearly a quarter of global FDI inflows in 2011. While Asian economies will and should continue to seek FDI from advanced economies, it is time they considered alternative sources, especially from large emerging economies that have sustained growth potential, such as China and the other major BRIC nations.

In U.S. history, difficult times have translated to periods of xenophobia, isolationism and protectionism, from the anti-Chinese legislation in the late 19th and early 20th centuries, to the anti-Japanese sentiments in the late 1980s. Today, America’s lingering economic weakness has hardened public opinion on international trade policies and anti-China advocates are exploiting that negative sentiment in their quest to make China a convenient scapegoat for America’s systemic problems.

Once the most influential and dynamic bilateral relationship in the global economic sphere, thorny issues of unbalanced trade, cybersecurity and intellectual property rights are now testing the political wisdom and strategic judgment of the two countries’ leaders, threatening to shake the fragile and vulnerable foundation of the Sino-U.S. relationship.

In the coming years, China’s leadership will need to increase its reliance on financial services for consumption-led growth. However, plans to develop Shanghai as a free-trade zone should not be seen as a threat to Hong Kong’s prosperity and future, but rather a signal to meet new economic challenges on the Mainland.

The U.S.-China split over climate change centres on the relative responsibilities of developed and major developing nations. China, along with other developing nations, argue that since advance economies continue to have far higher levels of emissions per capita, they alone should be subject to legally binding commitments to reduce emissions. Beijing sees the U.S. as containing the right of emerging nations to develop, while Washington sees China as engaging in environmental blackmail.

For three decades, China's reform and opening-up policies led to unprecedented economic growth, as well as the creation of first-tier megacities particularly along the coastal regions. China has in recent years contemplated a grand plan to make urban residents of 350 million Chinese villagers. It's a tall order and at stake is nothing short of China’s future.

In the early 1870s, the United States, the largest emerging economy of the era, overtook the United Kingdom. Now, as the United States' liquidity-driven growth eclipses, the once-in-a-century transition of economic power – from U.S hegemony to China’s peaceful rise – will likely accelerate.

The United States' global primacy depends in large part on its ability to develop new technologies and industries faster than any other country. However, after decades of intensified globalization and the rise of the large emerging economies, such as China, the world’s factory, and India, the world’s technology back-office, the old U.S.-dominated information and communication technology ecosystem has not only disintegrated structurally but it has dispersed geographically.

Pakistan’s recent elections were the first civilian transfer of power in the country’s troubled history. While it did take place amidst horrific violence, increasing poverty and pervasive corruption, it also held a promise of a very different future. Pakistan is likely to be more focused on economic development in the future, thanks to the transformative campaign of Imran Khan and his Tehrik-e-Insat (PTI) party. That, in turn, has substantial implications over U.S. and Chinese interests in South Asia.

Neither the U.S., with all of its military muscle and more than 40 percent of annual military expenditures worldwide, nor China, with its rising economic clout and military modernization, can effectively contain globalized terrorism on their own. Yet if they work together, the two countries could rally the international community into effective multi-polar counter-terrorism.

As a result of monetary expansion and fiscal stagnation in the advanced world, the BRICS countries are no longer immune to the debt crises that have plagued the developed economies. But contrary to what the critics may believe, the BRICS, as an alignment, are not headed towards demise.

In his inaugural address last Sunday, Chinese President Xi Jinping spoke about the "Chinese Dream", in which the mainland will restore its role as the largest economy worldwide. But unlike their predecessors, Xi and his fellow leaders can no longer rely on double-digit growth, or China’s old growth models. What China truly needs is a two-phase political transition, economic and financial reforms, and a geostrategic recalibration in Asia.